Financial Services

Collective Investments Schemes in Malta

As in 2010, FundDomiciles.com has ranked Malta second in its 2011 Stability Index.

Malta is a jurisdiction that is very attractive to fund promoters. Malta’s economy has come through the credit crunch and market crisis remarkably unscathed. Malta has stable financial institutions and offers a firm but flexible regulatory regime for investment services. As an EU Member State, the Maltese regulatory framework is based on the EU model, however in adopting a principle-based approach rather than a strictly rules-based approach, the MFSA (the Malta Financial Services Authority – Malta’s single regulator for financial services activities) ensures that fund promoters’ requirements are addressed satisfactorily.

The Maltese Investment Services Act (Cap. 370, laws of Malta) (the “ISA”) allows for the establishment of both:

retail schemes; and

professional investor funds (hereinafter referred to as “PIFs”).

Professional Investor Funds

PIFs are collective investments schemes designed to target professional investors and/or high net worth individuals.

A PIF may take any of the following legal forms:

(i) an open-ended or close-ended investment company with variable share capital (SICAV) (which could either be private company or public company);

(ii) limited partnerships;

(iii) a unit trust; or

(iv) a mutual fund.

The Maltese regulatory regime distinguishes between 3 categories of PIFs depending on the experience of the targeted investor:

(a) the experienced investor (with an entry level of €10,000);

(b) the qualifying investor (with an entry level of €75,000); and

(c) the extraordinary investor (with an entry level of €750,000).

While there is no requirement that any of the directors of the PIF is a Maltese resident, it is advisable that, at least, one local resident director is appointed on the PIF’s board.

Any service providers appointed by the PIF should be established and regulated in a “recognised jurisdiction” (i.e. the EU and EEA Member States and signatories to a Multilateral or Bilateral Memorandum of Understanding with the MFSA covering the relevant sector of financial services) or is subject to an equal or comparable level of regulation and supervision in the jurisdiction concerned.

A PIF must ensure that its assets are subject to adequate safekeeping arrangements. PIFs targeting experienced investors must appoint a custodian who shall be separate and independent from the scheme’s manager and must act independently and solely in the interests of the investors. PIFs must appoint an auditor approved by the MFSA and must ensure that, at all times, a compliance officer and a money laundering reporting officer are appointed.

A PIF must draw up an Offering Document to be provided to prospective investors free of charge.

No restrictions are imposed on the investment objectives, policies and restrictions of PIFs targeting extraordinary investors and qualifying investors other than those outlined in the Offering Document. However, PIFs targeting experienced investors, apart from the investment objectives, policies and restrictions found in the Offering Document, are also subject to the restrictions contained in the Investment Services Rules for Professional Investor Funds issued by the MFSA.

No leverage restrictions apply to PIFs targeting extraordinary investors and qualifying investors (in the latter case, unless the PIF invests in immovable property). PIFs targeting experienced investors may leverage up to 100% of the scheme’s NAV (if for liquidity purposes, the scheme is allowed to leverage unlimitedly).

Retail Funds

Retail schemes may be set up as a non-UCITS retail scheme or in accordance with the requirements of the UCITS Directive.

A Maltese non-UCITS retail scheme may be set up as an open-ended or closed-ended scheme and may market its units to the general public in Malta without limitation. It is also possible to market a Maltese non-UCITS scheme to investors outside of Malta subject, of course, to compliance with the relevant authorization or regulatory requirements applicable in the jurisdictions where the investor is based.

A Maltese non-UCITS scheme may be self-managed or may appoint a third party manager, and must appoint a custodian or depositary that is based in Malta and which is licensed in Malta in accordance with the ISA. An administrator appointed by a non-UCITS scheme must be based in Malta.

Such UCITS scheme must necessarily be set up as an open-ended and must, of course, satisfy the legal and regulatory requirements set out in the UCITS Directive.

Maltese UCITS schemes may take advantage of the UCITS brand which is recognized globally as a liquid, transparent and regulated product and are able to freely market across Europe and distribute their units cross-border by following the notification procedures set out in the UCITS Directive.

A Maltese UCITS scheme may be self-managed (if set up as a SICAV) or may appoint a UCITS European management company. The UCITS scheme must appoint a custodian to whom the assets of the scheme are entrusted for safekeeping. The custodian must have an established place of business in Malta. The UCITS scheme may appoint an administrator who need not be based in Malta, provided such appointment is approved by the MFSA.

A Maltese UCITS Scheme is required to draw up a Prospectus and a short document (on each sub-fund) containing key information for investors, the Key Investor Information Document.

It is also possible for a PIF licensed in Malta to be converted into a Malta-based UCITS scheme. The regulatory framework sets outs a number of documents that would need to be submitted for such conversion to take place.

Re-domiciliation of Funds

Maltese law permits the re-domiciliation of companies into and out of Malta. This adds to the jurisdiction’s attraction to fund promoters and has, in fact, resulted in a number of offshore companies providing fund management services and offshore investment funds to move to a reputable jurisdiction such as Malta.

In terms of Maltese law, it is possible to re-domicile into Malta closed-ended or open-ended SICAVs as well as a limited liability partnership.

The re-domiciliation of funds ensures that the fund retains the same legal personality, the continuity of the fund’s performance and track history, no need to transfer the scheme’s assets, no capital gains tax incidence in the case of a transfer of units, the custody or prime brokerage contract remains unchanged and unit holders remain registered as before with their status unaffected by the move.

The MFSA has published guidelines for the re-domiciliation of offshore funds to Malta following the increase in interest in this respect. The guidelines provide a simple one-stop procedure to be followed by funds intending to re-domicile to Malta.

The possibility of re-domiciling to Malta has opened the doors to offshore funds to convert into an onshore UCITS scheme registered in an EU Member State with the associated benefits of distributing and marketing cross-border.